First reported by the Financial Times, no final decisions have been made regarding the removal of the cap but this could be announced in the mini Budget next week. The Budget is intended to lay out support for the cost of living crisis which could include tax cuts. 

Pushing up fixed pay 

Banker bonuses have been limited to twice an employee’s salary with the approval of shareholders or 100 per cent without approval. This has been in place since 2014 and was brought in by the European Union (EU) following criticisms over bankers’ pay following the 2008 financial crash. 

The policy was first proposed in April 2013 and the UK sued the EU over claims it was illegal in September of that year. In November 2014, the European Court of Justice (ECJ) rejected the then-chancellor George Osbourne’s claim. 

Osbourne later withdrew the legal challenge, saying: “I’m not going to spend taxpayers’ money on a legal challenge now unlikely to succeed.  

“The fact remains these are badly designed rules that are pushing up bankers’ pay not reducing it. These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks.” 

The ECJ agreed that it could push up base level salaries as there were no restrictions on fixed pay but said the UK government was unlikely to be successful in the legal battle. 

Economist and member of the Bank of England’s Monetary Policy Committee, Andrew Sentance, has criticised the reported decision to remove the cap on bankers’ bonuses. 

He tweeted: “If Kwasi Kwarteng thinks that the way to reinvigorate the UK economy is to allow rich bankers to earn bigger bonuses, he is – to put it politely – barking up the wrong tree. We need policies to boost growth which energise the bulk of the population, not just an elite few.” 

Bad timing 

Speaking earlier on BBC Radio 4’s Today program, Sentance said: “I think it sends a rather confused signal when people are being squeezed in terms of the cost of living and the government’s trying to encourage pay restraint in the public sector. So, to appear to allow bankers to have bigger bonuses at the same time doesn’t look very well timed. 

“There may be some longer-term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.”